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The New Zealand dollar touched a fresh nine-month high overnight as the US dollar continued to weaken amid growing expectations the Federal Reserve won't rush to raise interest rates further even if economic data improves.

The kiwi hit 69.66 US cents, and was trading at 69.20 cents at 8am in Wellington, from 68.99 cents at 5pm yesterday. The trade-weighted index advanced to 72.97 from 72.93 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, reached a five-month low as investors bet the Fed will raise interest rates at a slower pace than previously forecast, even if data shows the world's largest economy is improving.

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Tonight, the focus will be on the US non-farm payrolls report, an economic indicator closely watched by the Fed although analysts are circumspect over whether an improvement would make the Fed any more likely to hike.

"The US dollar has continued a gradual descent overnight, ahead of tonight's US payrolls release," Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note.

The report, due for release at 1:30am Saturday New Zealand time, is expected to show non-farm payrolls rose by 205,000 in March, after a gain of 242,000 in February, while the unemployment rate is expected to remain at an eight-year low of 4.9 percent.

"While a stronger-than-expected outcome could see a knee-jerk rebound in the US dollar, we believe the market's threshold for positive surprise is now a lot higher. It has become increasingly sceptical that the US Fed's actions are actually 'data dependent'.

The Fed appears easily swayed from its path of 'normalisation' by the slightest market volatility or external risk, even in the face of a firming US labour market," Martin said.

The kiwi's relative strength is increasing the chance that the Reserve Bank will cut interest rates faster than previously anticipated, Martin said.

"The argument for a cut in both April and June becomes strong," she said. "We thus put a cut on 28 April at 50/50 odds, with a cut by June almost a done deal. By contrast, the market does not fully price a cut until the August meeting."

This afternoon, traders will be eyeing data on Chinese manufacturing scheduled for release at 2pm New Zealand time. While the PMI manufacturing index is expected to remain in contraction below the key 50 level, a small improvement from the prior reading is anticipated, Martin said.

"The market will likely not take kindly to any disappointment, given its continued sensitivity to signs of softness in China," she said.

The New Zealand dollar edged up to 48.14 British pence from 48.11 pence yesterday, advanced to 77.86 yen from 77.53 yen, and gained to 4.4620 yuan from 4.4614 yuan. It slid to 60.76 euro cents from 60.96 cents, and was unchanged at 90.14 Australian cents.(BusinessDesk)